Standing Committee A

[Mr. Joe Benton in the Chair]

Child Trust Funds Bill

Clause 4 - Inalienability

George Osborne: I beg to move amendment No. 112, in
page 3, line 18, leave out subsection (2).

Joe Benton: With this it will be convenient to discuss amendment No. 113, in
page 3, line 25, leave out subsection (5).

George Osborne: It is good to resume after a week's gap. My only regret is that my party is not here in full strength, and nor are the Liberals.

David Laws: We are at half strength.

George Osborne: Sadly, we are not here in full numbers, or we might be able to make some constructive changes to the Bill.
 The clause concerns what the Government call inalienability. That is to say, one cannot assign a child trust fund or have an agreement to charge against a child trust fund investment. Subsection (2) states: 
''On the bankruptcy of a child by whom a child trust fund is held, the entitlement to investments under it does not pass to any trustee or other person acting on behalf of the child's creditors.''
 I tabled the amendment out of curiosity because I want to know under what circumstances a child can be declared bankrupt. Given that we have previously had debates about how they are not able to enter enforceable contracts, it seems a bit harsh to declare a child bankrupt. However, if there are such circumstances, and the Minister tells us what they are, why should creditors, who might be suffering hardship or owed substantial sums, not have access at least to additional savings put into a child trust fund, if not the original Government contribution? I can see why the Government might want to protect their original contribution, but why, in what are presumably extraordinary circumstances, should a creditor not have access? 
 If one can apportion blame in such cases, and the bankruptcy was the child's fault—perhaps it entered into an ill-conceived and ill-advised financial arrangement that led to the bankruptcy—surely losing the additional savings in the child trust fund would be a good lesson about the dangers of doing such things. However, if the bankruptcy was the fault of the parents, and the additional savings were put in to the child trust fund by the parents, should not the creditors have the right to access them?

Ruth Kelly: The hon. Member for Tatton (Mr. Osborne) asks whether a child can be made bankrupt. In law, a
 child can be made bankrupt—for example, if he misrepresents himself to be over the age of 18 and enters into contracts, those contracts may be binding on him. In ordinary circumstances, it is not possible to have an enforceable contract, but if the child has misrepresented his age, it can be possible. A child could start a business and buy stock, pretending to be 18. If he could not then pay for the stock, the supplier could sue, resulting in the bankruptcy of the child.
 The hon. Gentleman asks why, if there were to be such a case and it was clearly the fault of the child, the child should not lose the assets. This touches on a centrepiece principle of the Bill. The assets should be locked away until the child reaches maturity at the age of 18.

George Osborne: Surely, if a child has set up a business under false pretences, and he is being made bankrupt, other people might have lost money in dealing with him. Might he not then, at the very least, lose his precious child trust fund? That would be a valuable lesson to him.

Ruth Kelly: The hon. Gentleman makes a good point, but as I was explaining, the purpose of the Bill is that everyone, no matter their history or family history, will have access to an asset at the age of 18, whether it is their own or their parents' fault that they have had financial difficulties in the past. That is a key principle of the Bill, and on those grounds I ask the hon. Gentleman to withdraw the amendment.

George Osborne: I shall not press the amendment. It seems a little strange that a 17-year-old, for example, could enter into all sorts of arrangements and cause people to lose money, and then a few months later receive the windfall of the child trust fund. I suppose that there is a question—the Minister need not get to her feet, but might perhaps answer it when she speaks on the next group of amendments, if you allow that, Mr. Benton—whether, once the child is 18 and the child trust fund matures, someone could claim against those assets. Perhaps if there is an ongoing action for bankruptcy, and the creditors are trying to recover money, they will wait until the child is 18. However, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Question proposed, That the clause stand part of the Bill.

Joe Benton: With this it will be convenient to discuss amendment No. 136, in
clause 20, page 10, line 41, at end insert— 
 '( ) any person who assigns, or enters any agreement to assign, investments under a child trust fund or who charges on, or enters any agreement to charge, any such investments.'.

George Osborne: Amendment No. 136 applies to clause 20, which we have yet to reach and which sets out the penalties for those who, among other things, make fraudulent claims for child trust funds. The amendment would apply a similar penalty of a fine up to £3,000.
 Clause 4 sets out, in the round, the admirable objective of trying to prevent people from in effect mortgaging their child trust fund. In a worst-case scenario, someone could borrow from a loan shark 
 against their child trust fund, provided that the expected assets of the child trust fund are set as security against a loan. Indeed, I know that some poverty groups have been concerned about that, and one can envisage it happening in some parts of the country. It is a serious risk and we need to protect children and their assets from it. 
 As far as I can understand the matter—I am happy to be corrected by the Minister—all that the Bill does is render void any charge on funds held in a child trust fund. Obviously, that is quite a deterrent to a loan shark. However, other sanctions could be deployed. I merely propose in amendment No. 136 to give the authorities the power to punish loan sharks and the like, if they try to seize child trust funds.

David Laws: I want to make a comment somewhat in contrast with that of the hon. Member for Tatton on the amendment and the relevant aspect of the clause. The hon. Gentleman referred to circumstances in which individuals and others might attempt to use the content of the child trust fund as collateral—presumably in a loan agreement—and to draw down the proceeds of a child trust fund earlier than intended by the Government. He invited us to put those cases on a level playing field with attempts to defraud the Inland Revenue in respect of child trust funds.
 I do not want to return to our previous argument about whether child trust fund accounts should be open to be drawn down when the child is 16. I expressed concern that the Bill was unnecessarily restrictive with respect to the opportunity to draw down early. However, we can perhaps imagine circumstances in which it might be more acceptable for people to want to gain access to the value of the child trust fund earlier than intended by the Government. The hon. Member for Tatton cited the examples of loan sharks who might want to exploit the collateral value of a child trust fund to make a loan at a high rate of interest. However, there might be extreme but not completely unlikely circumstances in which people might want to draw down from child trust funds. I invite the Minister to contemplate circumstances, which we hope will not arise in the future, in which a young person with severe medical problems might seek to draw down on the proceeds of a child trust fund in order to help contribute to vital medical treatment that might not be available in this country or through the national health service. Such situations do arise. 
 One can contemplate a situation in which an individual might have several thousand pounds in a child trust fund and might need expenditure for something of particular urgency, such as a medical operation. One can imagine there being a great deal of sympathy in public and press sentiment and in the minds of Ministers, one of whom may be in the Financial Secretary's position at the time, for people who wish to draw down on their child trust funds under those circumstances, particularly if the operation or the event in question is something of great importance in someone's life. There would be enormous frustration that the assets of the child trust 
 fund were locked up in the way the Government intend. 
 I do not necessarily expect the Minister to respond immediately with a solution to my problem and to address my concern, because what I have suggested seems contrary to the Government's intention to lock away the proceeds until the age of 18. I am not sure that I want to go as far as the hon. Member for Tatton in putting the attempt to draw down the child trust fund on an equal basis with fraud. I invite the Minister to contemplate whether there may any circumstances in the future in which she might exceptionally be willing to take a more flexible approach to drawing down or using as collateral the proceeds of these funds.

Ruth Kelly: I will take the points made by the hon. Member for Tatton first. He answered his own question: the funds would be made legally void as security if someone attempted to use them as security. He asked whether it was appropriate to add the civil penalty to reinforce the point that one should not attempt to use the child trust fund for security against a loan, but that is clearly not the case in law. It is not appropriate to have an additional civil penalty for an act that has been made legally ineffective. If someone attempted to use the fund thus, the fact that there would be no force in law should act as sufficient deterrent in itself.

George Osborne: Surely the Minister can envisage a circumstance in which, for example, a 17-year-old is approached by someone who says, ''Listen, in return for your child trust fund I'll give you £500 now''. It is true that that is unenforceable in law, but there will be other ways in which that person may try to extract the money by the time the child is 18. I am suggesting a civil penalty, which may not be used, but would merely be an option for the authorities. It would give them an extra deterrent to stop such people going around knocking on doors trying to get hold of child trust funds.

Ruth Kelly: It is certainly possible to imagine loan sharks going round to people's houses and trying to extract value from a child trust fund. However, the young adult will be able to have the full benefit of those funds at the age of 18, so I cannot imagine any advantage to loan sharks in trying to go down that avenue. It would be completely without hope of reward. I am sure that if they took the matter to extremes, they could be pursued in the courts for harassment or other issues that may arise.
 The hon. Member for Yeovil (Mr. Laws) made a point about access to the fund before the age of 18 under exceptional circumstances. We have considered that issue in depth. There are of course cases in which people may feel that they should have recourse to the fund, perhaps in exceptional circumstances before the child reaches the age of 18. Unfortunately, we have not been able to devise a solution to that problem. It would be extraordinarily difficult for discretion to be exercised by the Inland Revenue, or any other party that one might think of, and for judgment to be made in difficult situations. On the whole, we felt it better, although one might argue that this is rough justice, that the funds should be locked in until the age of 18. 
 On those grounds, I ask the hon. Member for Tatton not to press the amendment.

George Osborne: If this turns out to be a major problem in 18 years time, the Government of the day will have to tackle it. As we do not know who will be in Government in 18 years time, we will have to wait for that occasion.
 Question put and agreed to. 
 Clause 4 ordered to stand part of the Bill.

Clause 5 - Opening by responsible person

George Osborne: I beg to move amendment No. 15, in
clause 5, page 3, line 35, leave out from 'may' to 'apply' in line 37.

Joe Benton: With this it will be convenient to discuss the following amendments:
 No. 192, in 
clause 5, page 3, line 36, leave out from 'within' to 'apply' in line 37 and insert 
 'a period of six months beginning with the day on which the voucher is issued'.
 No. 17, in 
clause 5, page 3, line 39, at end insert 
 'in accordance with the provisions of subsections (3A) and (3B). 
 '(3A) An application for the opening of a child trust fund may take the form of the responsible person— 
 (a) giving the voucher to an account provider, or 
 (b) otherwise informing the account provider that he is a responsible person who has been issued with a voucher. 
 (3B) Regulations may prescribe— 
 (a) the period beginning with the day on which the voucher is issued within which an application may be made, and 
 (b) the means by which information given in accordance with subsection (3A) must be provided and authenticated.'.
 No. 18, in 
clause 5, page 3, line 40, leave out 'receipt of the voucher' and insert 'provision of the application'.
 No. 115, in 
clause 5, page 3, line 40, leave out 'must' and insert 'may'. 
 No. 116, in 
 clause 5, page 3, line 43, leave out 'in accordance with regulations' and insert 
 'within four weeks of receipt of the voucher'.
 No. 118, in 
clause 6, page 4, line 9, leave out 'in accordance with regulations' and insert 
 'within four weeks of receipt of the application'.
 No. 25, in 
clause 6, page 4, line 15, leave out '5(3)' and insert '5(3B)(a)'.
 No. 166, in 
clause 12, page 6, line 43, at end add— 
 '(4) The Inland Revenue shall publish proposals for subscriptions to be made to child trust funds by electronic means.'.

George Osborne: This group contains two sets of amendments that would do different things. I shall treat them separately, and shall come on to the more
 important set of amendments in the second half of my remarks.
 Amendments Nos. 116, 118, 25 and 192 would write or amend on the face of the Bill what we know that the Government intend to do by regulation. Subsection (3) states: 
''A responsible person may, by giving the voucher to an account provider within such period beginning with the day on which the voucher is issued as is prescribed by regulations, apply to open for the child . . . a child trust fund''.
 The explanatory notes state: 
''The Government has proposed that that period be one year.''
 In English, that means that if a parent or guardian had not opened a child trust fund after one year, the Government or the Inland Revenue would step in and set up an account for them. Amendment No. 192 is merely a proposal that that period be made six months, principally to provoke a debate about why the period of a year has been chosen. Six months seems quite a long time in which to apply for and set up a child trust fund. I cannot imagine that many people would not have done so in the first six months but then would do so in the six months after that. I suspect that a small number of the people applying would do so in the latter half of the year in which one can open a child trust fund. 
 Of course, income is forgone and no investments are made for the period in which an account is not set up and a voucher is not lodged in a child trust fund account. The child loses out because of the negligence or incompetence of their parents. I am not sure why the period of a year is required; why not make it six months? Six months is a long time after the birth of a baby to get around to opening a child trust fund. If the period is going to be one year, will the Government send a reminder after six, eight, or 10 months, stating that the person involved has not opened a child trust fund? If not, there is no point having a period of a year. The voucher will have been sent, but it will sit at the bottom of a pile of paper, or might be thrown out, and the parents will not open it. Amendment No. 192 would deal with that point. 
 Subsection 4(b) of the clause states that the account provider must, in accordance with regulations, inform the Inland Revenue that they have received the voucher. We know that the Government intend financial providers to do so within a fortnight. The White Paper states: 
''For new or transferred accounts providers will be required to make a fortnightly return to the Inland Revenue including the name of the child, the unique reference number and the amount to be credited to the account.''
 As I said, the amendments are probing. I seek to clarify why that period should not be a month. Is it really necessary to require financial providers to make fortnightly returns? That seems excessive. Surely a slightly lighter touch would involve a financial provider merely making a monthly return to the Inland Revenue. 
 Amendments Nos. 17 and 18 are more substantial. I will let my Liberal Democrat colleague speak for himself, but I believe that his amendment seeks a similar aim—to try to move away from the Bill's 
 ludicrously bureaucratic and outdated voucher system. Of all the things that we can debate, such as the principles of the Bill or whether it should be extended to different age groups, what strikes one as truly prehistoric is the paper-based voucher system. I believe that I am right in saying that every major financial institution, and every organisation representing financial institutions, has made the point that it is totally unnecessary. I will discuss their comments in a moment. 
 By all means, send parents such as me a nice certificate saying, ''You can open a child trust fund for your child,'' but why require them to take that voucher to a bank, building society or other financial provider? Why on earth will the Government not allow people to do that on the phone or via the internet? As I said, it seems extraordinarily old fashioned. The White Paper makes it clear that the parent or guardian will have to give the voucher to their chosen provider. Several financial institutions have responded to that point by saying that this is totally unnecessary. The Children's Mutual said: 
''We stress the point of the administrative burden of providers physically having to receive and store CTF vouchers in all cases. This process should be made as simple as is possible making use of the latest technologies that are available to providers and the public. If the IR can request a provider to open an account without issuing a voucher, we would advocate that this approach could work for the providers and the responsible person.''
 The Norwich Union says: 
''Putting the onus on parents to approach a provider to open their account via use of a voucher system may not compel them to do so—thereby increasing the number of 'shell' accounts which do not attract further contributions other than the government's initial amount and not meeting the long-term savings aim of the CTF. Physical collection of vouchers may also lead to higher administrative costs if providers need to pursue parents to send them in.''
 The Association of British Insurers also makes that point. It says: 
''One minor example may help to illustrate the way that additional and unnecessary costs may be imposed which deliver no obvious benefit to the consumer'',
 and that the requirement to provide vouchers 
''negates the possibility of providers keeping costs to an absolute minimum by enabling parents to open CTF accounts by more cost-effective and customer-friendly means—e.g. over the telephone or on the internet. The requirement to collect the vouchers means that even if such methods are used to register an account, it cannot be authorised unless the voucher is physically sent to the provider. This, in turn, creates additional administrative complexities (and associated costs) for providers who must (i) make sure that the voucher has been received; (ii) chase individuals who fail to send it in; (iii) cancel accounts where the voucher is never received; (iv) store the vouchers for no discernible purpose. Although a very minor example, such requirements make it more difficult for providers to operate efficiently and offer consumers value for money. Moreover, such requirements may also have an adverse effect on take-up, given that it is generally true that the more complex the procedure to open an account the higher the drop-off rate.''
 Those are very good points, made by organisations that, after all, have a lot of experience in handling complex financial transactions. They make two points: first, the requirement will deter some parents, who would much rather simply pick up the phone or go online to open their child trust fund account; secondly, 
 it will impose an unnecessary burden on financial providers. As all those organisations have made clear, not only will they have to chase parents who do not send the voucher and send out letters, which add to the cost of managing the account, but they will have to store the vouchers until the child reaches the age of 18. That conjures up a Dickensian view of financial institutions as counting houses with massive underground vaults and filing cabinets full of child trust fund vouchers. That is not how the modern financial industry operates. Many people bank online or over the telephone, and that involves much larger sums than child trust funds. 
 The Government's counter-argument is that, without the voucher, there is a risk of fraud. First, many more complicated and valuable transactions are completed online every day in the City of London, and they do not require vouchers. Secondly, parents will receive a unique child trust fund number on the voucher or letter that is sent to them. If someone has the correct date of birth, name and number, the risk of fraud is minimal. Indeed, the Government previously put the proposal down as having a low risk of financial fraud. Money laundering regulations that the Government have introduced in the past couple of years do not cover child trust funds because they are deemed unlikely to be used for fraud or money laundering. 
 It is strange that the Government are insisting on such a bureaucratic process. I suspect that they are nervous that it will not work and that they want an old-fashioned paper system. However, that might increase complexity and deter people from sending in vouchers. It might deter those parents, such as myself, who will receive the voucher and think, ''I must open this child trust fund. I will do it on the telephone.'' If parents have to find an envelope and a stamp, they might not get round to applying. Sadly, the irrationality of the consumer, which we discussed in a previous sitting, is a fact of life. 
 Finally, I remind the Minister that the Government have an e-envoy and a vicious target of delivering all Government services online by 2005. I am not sure how they are proceeding with that target, but the Minister is not pulling her weight with child trust funds.

David Laws: I shall not repeat the hon. Gentleman's comments on the first amendment, since they were designed to probe the Government's intentions for the time period that will be set out in regulations and the Bill. I shall briefly comment on the second issue that he raised, which was the means of contributing to the child trust fund, and whether that should be restricted to vouchers and cash amounts, or whether the Government should consider electronic payments.
 Amendment No. 166 to clause 12, which sets out subscription limits, would require the Inland Revenue to publish proposals for subscriptions to be made to child trust funds by electronic means. Under clause 12, there is a restriction to ensure that contributions can be made only in monetary form and not with other products, such as equity products. However, as the hon. Gentleman indicated, the Government have 
 been reticent about embracing new technologies available to facilitate payments into child trust fund accounts. 
 The initial voucher payment made in paper form by the Inland Revenue may help consumers understand that a new product is being launched. The Minister is nodding and I hope that she will still be nodding after my second comment. She has a tendency to nod and then say something contradictory later. I accept that a voucher might be helpful when setting up the child trust fund, so my moderate amendment merely asks the Minister to consider publishing proposals to allow future subscriptions to child trust funds to be made electronically. Given the amendment's extreme moderation, I hope that she will back up her nodding by making constructive proposals and assuring us that the Government are not luddite on contributions to child trust funds and will help to stimulate payments by other means, including electronic means.

Ruth Kelly: The hon. Member for Tatton started by asking a couple of more detailed questions about the structure of the child trust fund, including why we allow parents a year in which to exercise their free choice as to the provider of the child trust fund account. Clearly, we want the maximum number of people to exercise their free choice as to the provider, partly because through exercising that choice they begin to increase their financial awareness. We can use the opportunities for financial education around that. Those are two key objectives of the child trust fund. Indeed, the fund provides a tremendous opportunity for parents who have not so far engaged with the financial services industry to do so. It is far better for parents to exercise that choice than it is for the Inland Revenue to allocate families a child trust fund provider.
 The hon. Gentleman rightly points out, however, that there is a trade-off between allowing parents the maximum possible time and allowing the maximum time for the endowment to grow for the child's benefit. We have chosen the period of a year to strike a reasonable compromise between those two positions. We shall allow parents the opportunity to consider the information pack that is sent out alongside the voucher and to become aware of the publicity campaign that accompanies the launch of the child trust fund. 
 We shall attempt to monitor the number of accounts that are opened over the first year of operation and into the future to see how long it takes the average parent to open an account and how many parents are failing to open an account as we approach the final months in the build-up to the cut-off point of a year. If a substantial number of families fail to exercise their free choice, the Inland Revenue will consider ringing them and reminding them that it would be in their interests to exercise that choice. We shall monitor that over the long term as we monitor and evaluate the policy itself. A year strikes a reasonable balance between the two objectives.

George Osborne: I do not know the answer to this question—one is always advised against asking such a question in Parliament—and perhaps the Minister can write to me if she does not have the answer to hand, but I should like to know what period people have to apply for child benefit and to have it backdated to the date of their child's birth. In addition, given that the Inland Revenue now administers child benefit, what modelling has taken place? Is there a clear pattern that if people do not do that in the initial few months, they will not do so at all and will have to be reminded? If so, perhaps the Minister could look again at the period of a year. It might help her to see the pattern for child benefit, because I suspect that the one for child trust funds will be very similar.

Ruth Kelly: The hon. Gentleman makes an interesting point. He will be aware that I am not the Minister responsible for child benefit, but I will certainly consider that issue. Given that this is a new policy, I think that it is right to give people the maximum flexibility and opportunity to hear the financial education messages that the Government and, no doubt, providers and voluntary organisations will put out at the relevant time. We shall have an opportunity to remind parents during the year if we find that they are not opening accounts promptly.
 The hon. Gentleman also asks about fortnightly returns. Up to a point, that is the same issue. It has to do with a trade-off between providing maximum opportunity for the account to grow, and minimising any potential burden on providers. We do not think that it is necessary for providers to contact the Revenue on a daily basis to say whether they have received any new accounts. On the other hand, a month in the scheme of an 18-year policy is a significant amount of time. We think that two weeks is more appropriate, and that fortnightly returns should be created electronically by the providers using their software systems. The returns will be sent electronically via the internet. We do not think that sending fortnightly returns will place any significantly greater burden on providers. Indeed, the informal contact that the Revenue has had with providers exploring the issue suggest that they do not have a significant problem with that. In the interest of maximising the value of the endowment on behalf of the child, I suggest that a fortnight represents the appropriate length of time. 
 To turn to the more fundamental issues—how we communicate the policy to parents, and whether a voucher is appropriate in the circumstances—I draw the Committee's attention to the Bill's objectives. Those are: to increase savings habits; to increase a person's assets at the age of 18; to create responsible consumers and—a key objective—to build financial education. I would argue that sending a family a voucher with the child's name on it, with the amount clearly expressed, is a valuable tool to increase financial awareness and will lead to an increase in habitual saving. 
 I note that, in evidence to the Treasury Committee, the National Consumer Council, which carried out significant qualitative research among young people 
 and parents, found that the voucher was very attractive. It said: 
''The £250 voucher will act as a trigger to parents to start, and to add to, a savings fund for all children born after September 2002 . . . It appears the prospect of a voucher with their child's name on it provided by the government, helps people feel that they are to be given a helping hand in meeting their personal financial needs. The CTF is regarded as providing a framework for giving their family a financial start, in a way that they could see as beneficial to them.''

George Osborne: I agree with everything that the Minister has said in the last few minutes. I am happy that people will be sent vouchers. I think that they will act as an incentive, and that it will be great to send people a cheque for £250 or £500. However, once people have received the voucher, they do not then have to take it to a bank or a building society to open the account. The voucher will have a unique number on it: people can then phone the bank, or go online and do it via the internet. That is my argument, and the Minister knows it. She is also aware that almost every financial provider that she has consulted has made that argument.

Ruth Kelly: I am well aware of the point that the hon. Gentleman makes; he is quick to jump to his feet before I develop my argument. The voucher is, in principle, a powerful way of reminding people that they have that asset on behalf of their child. There is, of course, nothing to stop providers handling the administration of child trust fund accounts, either electronically or by telephone. The point that the hon. Gentleman makes is that we are insisting that, in due course, the paper voucher is produced, either in the post or personally. That does not strike me as an unreasonable requirement. Indeed, one of the requirements of the individual savings account, for example, is that providers store the application form for the account. The child trust fund is closely modelled on ISA provisions.
 I should like to correct a couple of misapprehensions under which the hon. Gentleman seems to be labouring. The first is that providers would have somehow to store a paper voucher for 18 years. In fact, a provider can scan the voucher in to the system and needs to store that scanned version for only three years, directly in line with the provisions of ISA accounts. That should not be such a burdensome requirement. The paper voucher also plays a vital part in reducing fraud, to which the hon. Gentleman alluded. While sophisticated fraudsters can produce a copy of any document, the voucher will be designed in a way to make copying difficult for the less sophisticated. The child trust fund providers will have a certain degree of confidence that a voucher accompanying an application to open the child trust fund is genuine. An electronic process would not provide that degree of certainty and could allow internet hackers to open multiple child trust fund accounts. 
 The paper voucher will contain vital information in the form of a barcode or microline that will allow providers to scan the voucher and keep that information electronically. That is crucial for child trust funds, as Government contributions will be 
 paid only where providers' claims reconcile with the Inland Revenue's child trust fund database. 
 The hon. Member for Yeovil asked whether we would consider electronic payments to child trust fund accounts. I can inform him that this is possible under the legislation. The child trust fund account is modelled on the ISA model, where payments can be made by a number of means, including electronic means, and this is envisaged in the current set-up for child trust funds.

David Laws: Will the Minister inform me—it is possible I have missed the paper—about where the Inland Revenue has described in detail the mechanisms that can be used to make subscription payments by electronic or other means? Is there a paper that sets out the detail of how that can be achieved, or is one due to come out?

Ruth Kelly: The hon. Gentleman will be pleased to know that the detail of those proposals will be set down in regulations, which we will publish shortly.

David Laws: On what I hope is a legitimate point of order, Mr. Benton—although I am sure you will tell me if it is not—we had hoped that we would have the regulations in order to debate the issue in Committee. You will appreciate, having chaired these proceedings for some time, that many of the issues in these clauses are fundamentally affected by the information contained in the regulations. Is it in order for us to ask when the regulations will be published so that they can inform the debate rather than us remaining in a state of partial ignorance until Committee proceedings have finished?

Joe Benton: It is in order to ask, but I am afraid that the Chairman may not respond to the question. I suggest that the hon. Gentleman ascertains that information through the usual channels.

George Osborne: In this Committee I have not pressed any amendment to a Division and I have generally been happy, where I have had issues of substance, to have the Minister agree to consider them. She agreed to consider the idea of extending the child trust funds to children born before 1 September 2002; she said it could be done through regulation and that she would talk to the financial providers. She also agreed to consider allowing 16 and 17-year-olds in England, Wales and Northern Ireland the same powers and rights that 16 and 17-year-olds in Scotland will have, and I was satisfied with that response.
 However, I do not follow her arguments in this case. I accept—I made this point in an intervention—that the Inland Revenue should send every parent a child trust fund voucher, just as a parent of a recently born child receives a letter from the Inland Revenue saying that they can claim child benefit. That is perfectly appropriate; I do not mind whether the voucher is fancy and looks nice and encourages people to start saving and so on. But it seems ridiculous that the person then has to send the voucher to a bank or building society. The Minister rests her arguments on the idea of fraud and internet hackers. As she knows, every day complicated financial transactions worth many billions of pounds take place over the internet, 
 and over the telephone in the dealing rooms of the City of London. Every day, people buy books or other products online. There is not a major problem of internet hackers accessing my Amazon account, buying books in my name and sending them to some other address. 
 In the 21st century, it is possible to devise a simple internet system that would allow people to register online for their child trust fund. Given the fact that the Inland Revenue will give everyone a unique number, it will be easy for it and for the financial providers to check, before opening an account, that someone has not already opened an account elsewhere. It defies belief that the Government are ploughing on with this old-fashioned system. 
 The Minister said at the beginning of her remarks that this measure was about financial education for people. Does she really think that in 18 years' time the vast majority of the financial transactions into which we enter will not be done either electronically or over the telephone? If the intention is to educate people who may have very little financial education, a good place to start would be to give them the option of doing this kind of thing over the internet or the telephone. I suspect that the better-off people in society do more internet banking and telephone banking than the less well-off, so if we want to enhance financial education, this would be a good place to start. 
 As the Minister knows, it is not a credible argument that the only way to protect against fraud in such cases is to have a paper voucher that must be handed in to a provider. I shall therefore reluctantly press amendment No. 17 to a vote.

Joe Benton: Order. The hon. Gentleman must seek a Division on amendment No. 15 as the lead amendment, not No. 17.

George Osborne: You are an expert in parliamentary procedure, Mr. Benton, and I am a total novice. I will therefore press amendment No. 15 to a vote, to make my point. I conclude by asking this simple question: what happens if someone loses their voucher? What happens if, during the year when they can open an account, they are unable to find it? Will there be some procedure through which they can open an account over the telephone? Do they have to telephone the Inland Revenue and say that they have lost the voucher? There are evident problems with a paper voucher system.
 As I understand it from the Minister, there will be a process in which a computer will identify the people who are entitled to a child trust fund. They will be sent the paper voucher, and they will then have to take the paper voucher to a financial provider, who can then electronically store the information and electronically make returns to the Inland Revenue. That is crazy. In the time available before the legislation is introduced I ask the Minister to think about the issue again. All the financial providers to which I have spoken have made that point to me, and I ask the Minister to reconsider. 
 Question put, That the amendment be made:
The Committee divided: Ayes 3, Noes 10.

Question accordingly negatived. 
 Clause 5 ordered to stand part of the Bill.

Clause 6 - Opening by Inland Revenue

George Osborne: I beg to move amendment No. 117, in
clause 6, page 4, line 3, after 'selected', insert 'at random'.

Joe Benton: With this it will be convenient to discuss the following: Amendment No. 149, in
clause 6, page 4, line 20, at end add— 
 '(6) Accounts and account providers selected by the Inland Revenue under subsection (1) shall meet lower risk criteria set out from time to time by the Financial Services Authority, designed to reduce the risks of significant capital losses from child trust fund accounts which have been opened or selected by the Inland Revenue.'.
 Amendment No. 150, in 
clause 7, page 4, line 27, at end add— 
 '(c) a child trust fund opened by the Inland Revenue may be transferred from one account provider to another, or moved from a stakeholder child trust fund account to one of the other account descriptions as prescribed by regulations.'.
 New clause 10—Investment information and advice from Inland Revenue— 
'(1) The Inland Revenue shall provide summary information on investment options and risks to all those responsible for managing child trust fund accounts. 
 (2) But the Inland Revenue shall not itself offer any advice on which account types or providers should be selected. 
 (3) If the Inland Revenue can be shown to have offered advice which has resulted in investment losses then it shall be legally liable for such losses.'.

George Osborne: I am still recovering from my shock defeat in the Division.
 Most amendments in this group were tabled by the Liberal Democrats, but I tabled amendment No. 117. As we discussed earlier, the Government have made it clear that when parents or guardians fail to open a child trust fund account within a year, the Inland Revenue will do so on their behalf. That is good. The White Paper also made it clear that such accounts will always be stakeholder child trust fund accounts, which include equities. That is also the right way to act, as children should not lose out through the negligence, incompetence or ignorance of their parents. I am sure that the Liberal Democrats will have something to say on that point. 
 I have a few questions that relate to amendment No. 117. It is made clear that not all financial providers that offer child trust fund accounts will have to offer Revenue-allocated accounts. What estimates has the Minister had of the number of 
 providers that will offer such accounts? Will there be a wide choice for the Revenue or will only a few providers offer to administer the accounts? From the providers' point of view, it is likely, although not absolutely predictable, that if a parent cannot be bothered to open an account, they will not make substantial contributions to it, so it is unlikely to be lucrative for the provider to administer. 
 There may be other administrative problems. If the providers have to deal with parents or guardians who did not open the account, they may find it difficult to keep track of where they have moved around the country. If the child comes from a dysfunctional family that splits up, the provider may find it hard to keep track of who is responsible for the account. Some additional administrative costs may be associated with Revenue-allocated accounts, so will the Minister say whether a substantial number of providers will offer them? 
 The White Paper makes it clear that the accounts will be allocated in turn. I take it from that that there will be a list of providers and the Inland Revenue will simply move down the list to allocate funds on a rota basis. I am suggesting merely that that is done at random, so that there can be no suspicion that people were allocated a duff account provider or poor-performing account. My amendment would mean that we could say with confidence that the accounts were allocated at random. 
 Amendment No. 117 is a probing amendment designed for discussion of the issue, but there is a serious point. Providers are unable to refuse Revenue-allocated accounts once they have agreed to accept them, but smaller providers may reach a point at which they cannot administer the funds. The current provisions will encourage only large account providers to offer Revenue-allocated accounts. A small building society with only a few branches that has overcome the hurdle of having to offer stakeholder accounts may want to administer a few of the accounts, but would be unable to handle a quarter or sixth of the Revenue-allocated accounts throughout the country. That is an important point in relation to the provisions that require providers to accept all Revenue-allocated accounts, regardless of their situation, once they have accepted the principle of taking such accounts. 
 What help will the Inland Revenue give to providers of Revenue-allocated accounts in keeping track of the people involved? They are unlikely to have had any direct contact with the parents or family, so will the Inland Revenue inform account providers when the child changes address? That is likely to be picked up by the child benefit administration, but will it pass that information to the account provider? What steps will the Revenue take to remind children throughout their childhood that they have a child trust fund? The children may be completely unaware of the accounts if their parents have not told them about them, and even the parents may be unaware, which is why the account was not set up. 
 Lastly, will financial providers have to alert children at the age of 18 that they have a child trust fund? Is the 
 financial provider obliged to track down those who hold such accounts? If one was being cynical, one might say that it was in the provider's interests not to bother tracking down all those with accounts holding £900, £1,000 or £1,100. The cost might be disproportionate, and the provider might not mind having a large number of low-value accounts steadily gaining interest, without anyone being aware that they are entitled to the money. 
 That is a string of probing questions and I should be grateful if the Minister could deal with some of them.

David Laws: I want to speak to amendments Nos. 149 and 150 and new clause 10. Clause 6 is extremely important, as it sets out how the state is to exercise its functions in respect of those child trust fund accounts that it opens for children who have no one to take responsibility for the account or whom the states considers are not fit to take such a responsibility. The clause provides that, for those individuals without parents, or those who have no other family members to exercise the responsibility, the state should ensure that every child has an account, even those who are in care, which certainly seems sensible.
 The state will therefore exercise a sort of parental responsibility in establishing child trust fund accounts. The Treasury believes that equity accounts will perform better over a longer period than cash or bond accounts, so the Inland Revenue will open all those accounts in a format that has a significant equity investment component. Under subsection (5), however, the Treasury and the state disown responsibility for their decisions when acting as the responsible entity in respect of those accounts. That seems extraordinary, and potentially dangerous. The Minister and the Treasury, doubtless for the most admirable of reasons, indicate that they believe that the equity account will be best for those particular individuals. 
 I question whether it is right for the Treasury and the Government to give such unambiguous investment advice as that embedded in the Bill and that given by the Minister on Second Reading and in evidence to the Select Committee. I also question whether adequate safeguards have been put in place for those accounts over time, so that a response can be made should the investment environment change. I question whether there should not be more flexibility in relation to the management of accounts. I question also whether it is fair for the Government to give such ambiguous investment advice in respect of equities as a class of investment and then, in subsection (5), to disown responsibility for managing the accounts. My incredulity about the Government's proposals and my sense that they pose a significant risk seem to be shared by a number of members of the Treasury Sub-Committee, not least the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) in his exchanges with the Financial Secretary when she gave evidence. 
 The background is the Government's unambiguous judgment that equities are going to be a better investment than cash or bonds. I repeat the evidence 
 that I cited in last week's debate, when my hon. Friend the Member for North Norfolk (Norman Lamb) asked the Financial Secretary in the Treasury Committee evidence session whether the Government wished to promote the equity product, she said: 
''Absolutely, because people tend to do better with equities''.
 The Government and the Treasury point out that equities tend to perform better than cash and other investments over time, yet in relation to the safeguard referred to in other evidence given, Ms Rookes told the Treasury Committee that 
''we would hope that they''—
 the people who make decisions about child trust fund accounts— 
''would understand enough to know that, over the longer term, equity accounts do tend to provide higher returns; but, when all is said and done, they will still have the opportunity to move to a cash account if that is what they feel more comfortable with.''
 That is absolutely true of those individuals who exercise responsibility over the accounts in question. However, it is not true of individuals who rely on the Inland Revenue to manage the accounts and exercise responsibility over them. Those individuals will have much less protection over time because, it seems, nobody will police their accounts or make decisions in response to changes in the investment climate. 
 There can be big changes in the investment climate, and I cite the example of the share market in Japan over the last 20 years. The majority of people who exercise responsibility over their own children's accounts might respond to changes by shifting the balance of the investment from equities to bonds or cash. However, those people whose accounts the Inland Revenue are to open will not have that flexibility, which should be a matter for concern. I know that we chortled somewhat over the Nikkei stock index accounts from Japan when we discussed the matter last week, but I invite the Minister to take a longer-term historical look, perhaps at the experience of the United Kingdom, as the Library has information on the share market in the UK that goes right back to 1700. Although I do not pretend that the investment circumstances in all those periods were precisely similar to those in the last 100 or so years, there is no reason why the 1800s and the industrial revolution should have been dramatically different from the last 60 or 70 years. 
 I invite the Minister to consider whether the results of investment returns from equity products to which the Inland Revenue has alluded are not heavily biased by the experience of the post-second world war period in the 20th century. In that period there were some incredibly high investment returns that have not been matched in many other countries—I mentioned Japan—or in other periods in British economic history. I would be very willing to go over some of the investment experiences of the 1700s, 1800s and the earlier part of the 20th century, although I suspect that you might not want me to do so, Mr. Benton, so I would be happy to pass my notes to the Minister if she would like to see them. 
 The point that I should like to underline, which should be evident anyway and which the Minister 
 should promote in her advice, is that, as the Building Societies Association put it in the memorandum that it submitted to the Treasury Committee, 
''past performance is a fallible indicator of future returns''.
 Yet there is a real possibility that the Government are taking decisions about the equity investment interests of those most vulnerable citizens on the basis of a limited period of years, without thinking about how those individuals could be disadvantaged in the future.

Ruth Kelly: I wonder whether the hon. Gentleman would share something with the Committee: would he allocate cash accounts from the Inland Revenue to children in care? Does he seriously suggest that as a possibility?

David Laws: I am saying clearly to the Financial Secretary that there could be significant periods when vulnerable young people's investment interests could be far better served by investing in bonds, or even in cash accounts, than in equities. I invite the Financial Secretary to consider, for example, the long period in Japan, not in the 17th or 18th centuries but in the past 20 or 30 years, in which there has been a bear market in equities. They have declined from 37,000 or 38,000 until as we speak they are at something like 10,000 or 11,000. I invite the Minister to reflect on whether she would put her money into equity accounts in such circumstances; could we reach a situation in which the accounts being managed, essentially by the state, are dealt with quite differently from those being managed by individuals?
 In case it seems too far-fetched to contemplate whether the equity accounts set up for vulnerable children and managed by the Inland Revenue should be managed more proactively in the future, I invite the Minister to go back to the evidence about child trust funds that she and her colleagues gave to the Treasury Committee on 3 December 2003. The hon. Member for Newcastle upon Tyne, Central, who clearly was very concerned about the issue, said to the Financial Secretary: 
''There is no question of judgment here, you are binding your successors, they will not be able to exercise judgment, all this money will be placed in equity accounts come what may. That is the issue.''
 In response to the hon. Gentleman, Ms Welsh, one of the officials who attended with the Financial Secretary, said: 
''Looking at the legislation I think I am right in saying that there is flexibility for the accounts to be specified. I believe that there will be flexibility if the Government is made over time to see that the nature of that account should be changed that that would be a possibility.''
 If that is so, I should like to hear more from the Minister because it seems to suggest that there could be significant changes in the equity composition of the accounts in question in circumstances in which equity investment was perceived, by the Government and by individuals taking decisions for their children, as far more risky. 
 The new clause and the two amendments that I have tabled touch on the issues and concerns that I have outlined today. Amendment No. 149 invites the Financial Secretary to contemplate whether there should be a specific role for the Financial Services 
 Authority in policing the riskiness of the accounts, and monitoring the risk over time. We debated that issue last week in respect of another clause. I shall not repeat the arguments here. 
 Amendment No. 150 is a reflection on whether there might be flexibility for the child trust fund accounts opened for the most vulnerable individuals to be shifted around between providers or between classes of child trust fund account. New clause 10 is essentially an over-arching clause that expresses our view about the Government's attitude towards promoting equity investment. It states essentially that the Government's role should be to provide information for all decision makers about the risk that they take in respect of child trust fund accounts, but that the Inland Revenue itself should not be giving such clear advice about the advantage of investing in particular asset classes. Where the Inland Revenue gives that advice and is responsible, potentially, for arranging, for a large group of people, a child trust fund account whose characteristics could mean significant capital depreciation over a long period, it is only right that the Inland Revenue should bear responsibility. 
 I agree with what I suspect the hon. Member for Newcastle upon Tyne, Central was hinting at in his comments to the Financial Secretary in the Select Committee: that if the equity market were deteriorating in the way that has happened in Japan, and child trust fund accounts of very vulnerable individuals, including children in care, were going down significantly, losing 50, 60, 70 or 80 per cent. of their value, it is inconceivable that the Government and the Minister could escape blame. There would be strong pressure for compensation for people whose accounts were invested in that way, particularly where the Government were perceived to have made that choice for these vulnerable individuals and to have got it wrong in relation to the risks in equity investment compared with bonds and cash. 
 I make no apology for going back over an argument that we covered to some extent last week. Fortunately, Mr. Benton, you were not in the Chair and so you have not had to listen to some of these arguments twice. We are considering how the Government intend to act in loco parentis to some of the most vulnerable individuals in society. We must ensure that those individuals are not disadvantaged by being locked out completely of an asset class that could appreciate in value. That is clearly the Minister's good intention, but neither must we put them, on the basis of the last 50 years of equity returns, in a position in which they could be significantly disadvantaged in comparison with those individuals whose accounts may be managed more proactively by parents, perhaps with the additional advice of financial advisers.

Ruth Kelly: A number of issues have been raised in this group of amendments. The hon. Member for Tatton asked whether a wide choice of providers would offer revenue allocated accounts. At least one provider whom I met stressed how much they wanted to get into this market of offering revenue allocated
 accounts. I cannot speak about all the meetings with providers, but officials have been exploring the issue them.
 The hon. Gentleman argued that we should move from a system based on a rota for the allocation of Inland Revenue accounts to one that is mathematically random. Most people, while perhaps not mathematically correct, would consider a rota basis to be random. However, he makes a point in theory. The Inland Revenue would not select a particular provider on purpose. It will simply move from one to the next on the list and rotate. He asked whether the Inland Revenue would keep track of all those individuals who have Inland Revenue accounts opened for them. We hope that most of these people will eventually, through financial education and the campaigns that we will run, move provider and exercise their free choice, which they can do at any point without penalty. 
 We are currently in discussions about what information we should provide to those providers who offer Inland Revenue accounts. I could come back to the hon. Gentleman with more detail on that.

George Osborne: When the Minister says officials are in discussion about information, that presumably is in answer to my question about whether the Inland Revenue would send changes of address to account providers. Is that what she was referring to?

Ruth Kelly: That is precisely the sort of information that we are in discussion about.
 On amendment No. 149, tabled by the hon. Member for Yeovil, the treatment of children in care presents real issues for the Government. I will not conceal from the Committee that those have not been easy issues for us to address. There are some quite difficult issues to resolve. We have been in consultation across Government about the best way to provide for children in care. I am determined to ensure that children in care have the maximum opportunity that we can offer them through this policy. I hope that we continue to work together across Government and with local authorities, voluntary organisations and other parties concerned about children in care and about how the policy can evolve for the benefit of those children. We have a choice. Assuming that we are not to deprive children in care of a child trust fund, what sort of child trust fund do we provide? 
 I note that the hon. Gentleman shied away from the possibility of suggesting that they should be offered anything other than a stakeholder account when I asked him whether the money should be invested in cash or bonds. We have to provide—

David Laws: I did not shy away at all. I said that it was possible that for significant periods the returns for these particularly vulnerable people could be higher in cash and bonds, and that the Government proposal did not allow for that.

Ruth Kelly: I am going on to suggest how we might deal with that situation. Let me draw the hon. Gentleman's attention to the fact that the majority of children in care have somebody with parental
 responsibility. That responsible person will, on behalf of the child, exercise—or not—choice with regard to the child trust fund account. A small minority of children are in care for a prolonged period, and for them the question of legal liability might arise in the way that has been presented. We are asking whether the Solicitor-General's office could act on behalf of those children. I cannot confirm today that that will be the eventual arrangement, because we are in discussion with the Official Solicitor as to whether that will be possible.

David Laws: I understand how difficult the issue is. Can the Financial Secretary say what her intention is in involving the Solicitor-General in that way? Is it to do with the legal liability for managing the accounts, and the need to insulate that from the rest of Government, or is it suggested that the Solicitor-General might make decisions relating to the investment proceeds of child trust funds, which seems less likely?
Mr. Michael Weir (Angus) (SNP) rose—

Joe Benton: Order. The Minister must respond to the first intervention.

Ruth Kelly: We are not talking about legal liability. The Bill makes it absolutely clear that the Inland Revenue has a duty to provide these accounts for children in care. However, we are talking about who acts on a child's behalf. I cannot reveal the detail of discussions that are ongoing, but I shall keep the hon. Gentleman and the Committee informed of progress.

Michael Weir: I apologise, Mr. Benton, for an inappropriate intervention. I wanted to follow up the point about the Official Solicitor's becoming involved, and to remind the Committee that there is a different official in Scotland. We should discuss what the position would be in Scotland.

Ruth Kelly: We are, of course, mindful of the devolution arrangements, and are consulting the appropriate person in Scotland. I can assure the hon. Gentleman that we are giving the issues serious consideration and that I shall report to the Committee in due course. I would ask the hon. Gentlemen to withdraw the amendments.

David Laws: I am grateful to the Financial Secretary for giving way. I am a little surprised that her comments were that short; I was hoping that we would get a chance to probe some of her thinking a little more. While I am grateful to hear that she is engaging with the Solicitor-General on this important issue, it is unclear to me how the Solicitor-General's involvement is envisaged in respect of the types of risk that I alluded to in the amendments and their control. I was particularly envisaging some authority with a little more market sensitivity than the Solicitor-General. I do not wish to run down the Solicitor-General, whoever that is. No doubt he is well aware of these issues, but I envisaged the involvement of an agency or authority with a little more market sensitivity and more contacts with financial markets and market risks than the Solicitor-General.
 I also hoped that the Minister would go into greater detail about the issue that Ms Welsh touched on in her 
 evidence to the Select Committee. She said that the Government might, in time, use additional flexibility to see if the nature of the account could be changed if the circumstances that they envisaged, presumably in relation to equity investment, did not come to pass. I hope that the Minister will re-examine that issue. Since she said that discussions with the Solicitor-General continue, and assuming that she has concluded her remarks—

George Osborne: She is allowed to speak.

David Laws: I give way.

Ruth Kelly: The hon. Gentleman makes a specific point about flexibility in response to a future change in climate. The risk controls are, of course, set out in regulation, which allows some flexibility, and they will be reviewed periodically as the policy progresses to ensure that we are dealing with stakeholder funds appropriately and specifying them accordingly.

David Laws: I am grateful to the Financial Secretary. I detect that she is, at least, more sensitive to the concerns that I expressed today than she may have been when we debated a similar issue last week. For those reasons, I shall not press my amendment to a vote, even if I were allowed to do so. I do, however, hope that we may return to the issue, and that the Minister will clarify the Government's intentions further before Third Reading. Perhaps we will have the opportunity to debate the issue again then.

George Osborne: I have not engaged in the debate about the philosophy of equity versus bonds, and I shall stick to the grubby details of how the scheme will work in practice.
 The Minister deployed against my amendment the best argument that she has deployed against any of my amendments, which was that a rota basis is, of course, random. That is, in fact, a knock-down argument, so it would be foolish of me to press the matter further. However, I raised another point that was not about my amendment. She did not respond to it, and I do not necessarily expect her to do so now, but she did say that she was aware of only one provider that was considering offering Revenue-allocated accounts, with which she had had a conversation. 
 The legislation contains a requirement that if a provider says that it will offer Revenue-allocated accounts, it must take all such accounts that the Inland Revenue sends its way. That may restrict the number of providers that enter the market. It is perfectly possible to imagine a building society with ties to a particular part of the country that may want to administer Revenue-allocated accounts in that part of the country but not throughout the country. It is perfectly possible to administer a small provider that says that it can handle several thousand, but not several hundred thousand, of those accounts. If the number of providers is small, the Minister may want to consider whether it is wise tying her hands in this way. I believe that that measure is in the Bill. It may be unusual for an Opposition spokesman to say this, but she may want to make it possible to change it by regulation. That may be a subject for another debate. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

George Osborne: I beg to move amendment No. 119, in
clause 6, page 4, line 16, leave out from 'child' to end of line 18.
 The amendment probes the Minister on some of the issues that she and my Liberal Democrat colleague discussed in the previous group of amendments. It leaves out subsection (4)(b), which states that the Inland Revenue can administer an account when 
''it appears to the Inland Revenue that there is no-one who is a responsible person in relation to the child.''
 It strikes me that when a child is not in local authority care—when they are in local authority care there is usually a responsible person—there must always be a responsible person in charge of them; for example, someone must be collecting child benefit on their behalf. As the explanatory notes explain, the Inland Revenue can act when it is 
''satisfied that there is no 'responsible person' able to open an account for that child. This will usually be where the parents are under the age of 18 and not entitled to administer a CTF account.''
 It also makes a point about the position in Scotland. 
 We have already had a debate about 16 and 17-year-old parents and it seems farcical that we trust young parents to raise a child and do many other things but not to handle a child trust fund account. I will not re-open that debate as the Minister said that she would consider the matter. 
 When there is no responsible person, usually because the child's parents are themselves children, would it be possible for a grandparent, or a relative or friend nominated by the parents, to act as a responsible person? Could a 16 or 17-year-old parent say that they would like their mother or father—the child's grandparents—to act on their behalf in that respect? Surely that is what the Inland Revenue would want because it would not want the job of setting up and administering these accounts. 
 Are there other circumstances in which a child who is not in local authority care has no responsible person in charge of them?

Ruth Kelly: The hon. Gentleman is correct to state that underage parents are the prime source of children in the category of having no one with official parental responsibility for them. But children fall into other categories where no one has defined parental responsibility. I mentioned children who live with grandparents; often, the grandparent does not have full responsibility. There are other situations, too, in which a child is living away from parents with a responsible adult who does not have full parental responsibility. There are many different situations—the child could have special guardians, for example. Other individuals apart from parents—adoptive parents, step-parents and so on—have parental responsibility. Special guardians fall into the second category of person who has parental responsibility. This clause is designed to pick up those children for whom nobody has parental responsibility. Parental responsibility does not refer just to the child trust fund; the definition goes wider than that.

George Osborne: I repeat, could 16 and 17-year-old parents nominate their parents—the child's
 grandparents—to be the responsible person to set up the child trust fund account, or would the Inland Revenue have to do it on their behalf? It would make more sense to allow a grandparent to do it on the child's behalf.

Ruth Kelly: I take the hon. Gentleman's point. I promise to look at the matter and come back to him. There will be categories of person for whom no one is willing or prepared to accept parental responsibility on behalf of the child, and the provision is clearly needed so that the Inland Revenue can allocate the account accordingly. On that ground, I ask the hon. Gentleman to withdraw the amendment.

George Osborne: I am grateful that the Minister will consider my specific point about allowing grandparents to act as the responsible person where the parent, for whatever reason—perhaps because they are under age—is unable to do so. With that assurance, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

George Osborne: I beg to move amendment No. 120, in
clause 6, page 4, line 19, leave out subsection (5).
 The amendment touches on an issue raised in the earlier debate between my Liberal Democrat colleague and the Minister. It strikes me that subsection (5), which states: 
''No liability is to arise in respect of the selection of an account provider, or a description of child trust fund, by the Inland Revenue under this section'',
 is an attempt by the Inland Revenue to duck its proper responsibilities. No one, apart from perhaps the hon. Member for Yeovil, would expect the Inland Revenue to be held accountable if a Revenue-allocated account performed poorly because the stock market went down. Investments hold inherent risks, and even this Government are not to blame for them—at least, they are not to blame only when the stock market is increasing. 
 It is possible to imagine circumstances in which the Inland Revenue chooses a financial provider that is not up to administering Revenue-allocated accounts, when the Inland Revenue should have foreseen that. As I interpret subsection (5), and maybe the Minister will correct me, the child trust fund holder would not have recourse against the Inland Revenue in those circumstances. The explanatory notes state clearly that subsection (5) 
''provides that the Inland Revenue will not be liable as a result of the choice of account provider''.
 As I say, the Inland Revenue may not have properly assessed whether an account provider is able to administer Revenue-allocated accounts. Surely in those circumstances, where the Inland Revenue is at fault for not doing its job properly in selecting account providers, a child trust fund provider should have recourse to law and the Inland Revenue should be held responsible for its actions.

David Laws: I am not going to be as generous as the hon. Gentleman, although we have signed up to his amendment. I am concerned that the clause involves
 the Inland Revenue and the Treasury essentially giving advice and making decisions, but then accepting no responsibility for the providers selected or for the asset classes in which the child trust funds are invested on behalf of those individuals for whom the Inland Revenue assumes responsibility.
 I understand why the Minister is concerned that we ensure that those people who do not have family to manage their child trust fund accounts have their interests taken into account, and have the returns from their account maximised. That is why the Minister made the decision about the equity-skewed account. However, if the Minister is going to act in loco parentis to that extent, it is not good enough for the Inland Revenue to simply wash their hands of the credit and other risks that may be assumed to be dependent on the provider involved in an individual's account and the performance of the investment over a long period. I am not going to go back over the examples that I cited earlier, but they are relevant to this amendment. 
 If the Inland Revenue tries to exercise responsibility for, and take an interest in, particular vulnerable group of people, as implied by its decision to select an equity investment, that cannot be the limit of its involvement in respect of credit risk and market risk. I can only hope that the Minister's comments about the potential involvement of the Solicitor-General indicate some flexibility on this point.

Ruth Kelly: It is important to say that even if the Inland Revenue has allocated an account, it is perfectly possible, indeed desirable, for parents to exercise their free choice and change the provider of the account at any time during its operation, even when children are in local authority care. With the vast majority of children, it remains the case that somebody exercises parental responsibility on their behalf. We would expect them to exercise that choice in due course and to move to a different provider if they thought that that was the better option for their child. I do not believe that the Inland Revenue will act as a financial intermediary, as the hon. Gentleman suggests.
 If there are issues surrounding providers and the accounts that they offer, consumer protection will be delivered. The FSA approves providers of CTF accounts, and the financial ombudsman exists to deal with complaints about firms and investment advice. The financial services compensation scheme acts as a safety net if FSA-authorised firms go out of business. However, there will be no market relationship between the Inland Revenue and the child. We have tested that advice legally, but the Government have a duty to ensure that the accounts are allocated to children.

David Laws: Will the Minister tell us more about the extent of the compensation that would be involved if a CTF provider were to go into liquidation? What amount of investment in a CTF account would be covered in those circumstances?

Ruth Kelly: The hon. Gentleman may be aware of the limits that operate under the financial services compensation scheme, but if he is ignorant of them, I will inform him. The maximum level of compensation
 for deposits is 100 per cent. of the first £2,000, and 90 per cent. of the next £33,000, so a child trust fund holder could lose 10 per cent. of the value of the fund in excess of £2,000, but that first £2,000 would be fully covered. That offers adequate protection while ensuring that there is no risk of moral hazards arising for providers.

George Osborne: Before the Minister finishes I want to turn her attention to a point that I raised. The FSA will certify providers as being able to provide Revenue-allocated trust funds, but not necessarily in large numbers. If it were able to do so, the burden would fall on it. However, if the Inland Revenue is to decide whether companies are able to provide Revenue-allocated accounts, subsection (5) should not remain in the Bill.

Ruth Kelly: No, I make it clear that the FSA is responsible in that situation. However, if the Revenue has independent information about a provider, it would be up to it to notify the FSA of any concerns. It is also incumbent on us to ensure that adequate information is available to parents, even if they do not exercise their choice of provider. We have commissioned research into the best way to communicate with parents when they receive a voucher for the child trust fund on the birth of their child. We intend to build on that in future to maximise parents' opportunity of understanding the product on offer and exercising their choice in the best interests of their child.

George Osborne: It is interesting that, as the Minister just said, if the Inland Revenue had independent information about a financial provider, it would be forced to pass that information to the FSA, because one could read subsection (5) as giving it immunity from being held responsible for any failure to do so. However, I will not push for a vote on the amendment, because I suspect that the courts would ignore subsection (5) and hold the Government to account.
 The hon. Member for Yeovil was surprised that the Minister knew all about financial compensation. He will remember that she is one of the few people who have read the Penrose report; those issues are at the forefront of it. I will not embark on a debate about that or I will receive a thousand letters. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 6 ordered to stand part of the Bill.

Clause 7 - Transfers

David Laws: I beg to move amendment No. 171, in
clause 7, page 4, line 27, at end add— 
 '(c) additional charges can be imposed by providers for transfers allowable under this section, including the maximum amount of such additional charges.'.
 The hon. Member for Tatton has been refreshingly candid about some of his amendments, so I start by acknowledging that I am not sure that I have framed mine in precisely the way that I intended. I shall describe this—as we do when we are not sure that an amendment has been framed as precisely as we would 
 want—as a probing amendment. The clause allows for transfers of CTF accounts. It gives the Treasury the power to make regulations to allow a responsible person to change an account from, for example, a cash to a stakeholder account, or to move an account from one provider to another. 
 To some extent, the discussion of amendment No. 150 returned us to a debate that the Committee had on the first day of our proceedings, when the Minister was asked what she had in mind for the charges that will be allowable for the management of CTF accounts. Amendment No. 171 invites her to tell us more about what charges she envisages applying to transfers, either between two CTF accounts with the same provider, or from one CTF provider to another. Does she intend that such potential costs will be covered by the charge cap that will be set for all CTF accounts? Will there be special provision for charges to apply in those circumstances? I put directly to the Minister the question that I wanted to ask earlier: when shall we know the levels of charge and the charge cap? We are waiting for them in advance of the publication of the regulations.

Ruth Kelly: I can answer that point briefly. I am certainly attracted to the idea of the transfer being without charge, although we shall, of course, specify any decision when the regulations are laid. I repeat to the Committee that that will be during the passage of the Bill in the Commons. We try to ensure that the information is available at the earliest possible opportunity, so that there is maximum time for debate. I assure the hon. Gentleman that that continues to be the case. However, to clarify one point in which I am sure he is interested, recovery of the necessary costs of effecting a transfer, such as share dealing costs, and stamp duty costs on the sale of purchases of shares, would be allowed, and it would not count towards the stakeholder charge cap. I am minded to try to ensure that every other aspect of any transfer is free.

David Laws: I am very happy with that answer. I hope that the regulations will emerge before the last quarter-hour or half-hour of the debates on the Bill, either in Committee or at Third Reading. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

George Osborne: I beg to move amendment No. 121, in
clause 7, page 4, line 27, at end add 
 'provided that no transfer may take place without the agreement of a responsible person'.
 The amendment provides that a CTF account can be transferred from one provider to another only with the agreement of a responsible person. Like the previous amendment tabled by my Liberal Democrat colleague, it is a probing amendment. When I was reading the Bill and trying to frame amendments to keep us all busy, it struck me that this idea may provide some important consumer protection. The explanatory notes say: 
''This clause gives the Treasury power to make regulations allowing a responsible person to change the type of CTF account, e.g. from a cash to a stakeholder account, and to move a CTF account from one provider to a different provider.''
 Our previous debate was about the responsible person making the decision to transfer an account, either changing the type of account or changing from one provider to another. 
 As I read it, however, the Bill would allow a financial provider to transfer an account without the consent of the responsible person, and surely that is unacceptable. If, for example, a financial provider decided to sell its book of CTF accounts to another provider, or if it wanted to wind down that part of its business and transfer or sell it to another provider, it should seek the consent of the account holders. In such circumstances, account holders should at least be given the option of going somewhere else if they do not want to move with the bulk of the CTF accounts. The Minister may say that they can exercise a choice in any case, but I presume that they would be able to exercise it only once the move had happened. 
 It is possible to envisage companies going bust, being taken over or changing the nature of their business. They may decide that, because of the charge cap set by the Minister, CTF accounts are not giving the sort of return that they had hoped for and that they will close down that part of their business. The amendment merely tries to ensure that when they do so, they seek the agreement of the responsible person. It would be an important consumer protection.

Ruth Kelly: I sympathise with the point made by the hon. Gentleman; we want to ensure that the responsible person is contacted, and that they are able to provide consent in every conceivable circumstance. However, in certain circumstances, and in order to avoid disadvantaging the child, we may want to provide for transfers to occur without the responsible person's authority. For example, in the case mentioned by the hon. Gentleman of providers ceasing to conduct CTF business, we cannot force them to continue that business indefinitely; that cannot happen in a market economy.
 If CTF accounts are to be transferred to a new provider and there is no responsible person, it is important that we see to it that the accounts are continued with that new provider. We would not want a child to be detrimentally affected by such changes. Such circumstances would of course be exceptional. Indeed, we discussed earlier the need for a duty of care and management of accounts by the Inland Revenue. I suggest to the hon. Gentleman that this is precisely the sort of case in which we would like the Revenue to operate such a duty to ensure that children without a responsible parent are not disadvantaged by transfers.

George Osborne: The Minister is making a drafting point. The amendment may not be as broadly drawn as it should be; perhaps it should state that no transfer may take place without the consent of the responsible person or, where no such responsible person exists, without the consent of the Inland Revenue. The principle is that a CTF provider should not be allowed to sell off its funds, or to merge, without the
 consent of those responsible people who manage the funds on behalf of their children.

Ruth Kelly: I do not suppose that the hon. Gentleman is trying to argue that a holder of a CTF account should have a veto over a firm's strategic development plans, but it is important that the party responsible for the fund has the option to move elsewhere. As the hon. Gentleman pointed out, it is at all times open to the responsible parent to transfer the account to a different provider, and I see no reason for additional safeguards. For that reason, I suggest that he withdraw the amendment.

George Osborne: I shall have to take what the Minister says on trust, and hope that sufficient other safeguards will be in place to protect consumers in such circumstances. I do not suggest that a single child
 trust fund could hold up a great financial merger. I merely suggest that before accounts were transferred, their owners' consent would have to be sought. If consent is not given, account holders should be given the option of transferring to another provider. I assume and hope that a responsible financial provider would keep its CTF account holders fully appraised of what it was doing. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 7 ordered to stand part of the Bill. 
 Further consideration adjourned.—[Jim Fitzpatrick.] 
 Adjourned accordingly at twenty minutes past Eleven o'clock till this day at half-past Two o'clock.